The Financial Conduct Authority (FCA)’s director of supervision appears to have ruled out any ban on commission being paid to mortgage advisers and arrangers. Some have suggested that mortgage advisers should be forced to accept fee-based remuneration, similar to the situation that has existed for investment and pension advisers since the introduction of the Retail Distribution Review.
But the FCA’s acting director of supervision (retail and authorisations), Linda Woodall, dismissed these suggestions when she told an FCA conference in September 2015:
“We didn’t find any evidence of commission bias as we did in the financial advice market, so there was nothing to address there. We still don’t have an issue with commission bias in mortgages and so there is no need to take steps in that regard.”
Alpha Investment and Financial Planning director Alan Solomons was amongst the financial advisers to criticise Ms Woodall’s remarks. Mr Solomons said:
“You need a level playing field and if there’s commission, theoretically at least there is the opportunity of bias. So what is in the customer’s best interest? This does seem inconsistent.”
Chair of the trade association the Association of Mortgage Intermediaries, Patrick Bunton, commented that mortgage commission was justified because the remuneration system did not work in the same way as in other areas of financial services. Mr Bunton said:
“The life and pensions firms can say [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][mortgage firms need to be treated the same], but their market saw RDR precisely because of huge discrepancies in the amounts of commission. Procuration fees in the mortgage world typically vary between 35 and 40 basis points. The sort of discrepancies that happened in their sector simply don’t exist.”
At present, all mortgage advisers are free to accept commission payments, but any independent mortgage adviser must offer their clients the option of paying by fees only. Mortgage commissions are sometimes referred to as procuration fees.
The FCA will conduct three studies into the mortgage market over the next 12 months:
• A review of whether lenders are meeting responsible lending criteria
• A general review to ascertain if the mortgage market is working effectively following the recent Mortgage Market Review (MMR)
• A wide-ranging review of access to financial advice, known as the Financial Advice Market Review, which will include an examination of the mortgage advice landscape
The MMR was introduced in April 2014, and its main provisions include:
• A ban on self-certification mortgages
• More rigorous requirements relating to lenders’ checking of affordability
• A ban on non-advised sales in most cases, including where there has been any face-to-face interaction between the customer and the selling firm
• Interest-only mortgages are now only permitted where the borrower has a credible repayment plan
The European Union’s Mortgage Credit Directive comes into force on March 21 2016, but the major impact of this legislation is likely to be felt by firms offering second charge mortgages and buy-to-let loans. The main impact for firms in the first charge market could be the introduction of the European Standardised Information Sheet – a new method of ensuring certain important information is disclosed to the customer, which will replace the existing Key Features Illustration.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.